Comparative financial statement data for Douglas Company and Maulder Company, two competitors, appear below. All balance sheet data are as of December 31, 2012, and December 31, 2011.
Douglas Company Maulder Company
2012 2011 2012 2011
Net sales $1,549,035 $339,038
Cost of goods sold 1,080,490 241,000
Operating expenses 302,275 79,000
Interest expense 8,980 2,252
Income tax expense 54,500 6,650
Current assets 325,975 $312,410 83,336 $ 79,467
Plant assets (net) 521,310 500,000 139,728 125,812
Current liabilities 65,325 75,815 35,348 30,281
Long-term liabilities 108,500 90,000 29,620 25,000
Common stock, $10 par 500,000 500,000 120,000 120,000
Retained earnings 173,460 146,595 38,096 29,998
Prepare vertical analysis and comment on profitability.
(a) Prepare a vertical analysis of the 2012 income statement data for Douglas Company and Maulder Company in columnar form.
(b) Comment on the relative profitability of the companies by computing the return on assets and the return on common stockholders’ equity ratios for both companies.
The comparative statements of Villa Tool Company are presented below.
VILLA TOOL COMPANY
For the Year Ended December 31
Net sales $1,818,500 $1,750,500
Cost of goods sold 1,011,500 996,000
Gross profit 807,000 754,500
Selling and administrative expense 516,000 479,000
Income from operations 291,000 275,500
Other expenses and losses
Interest expense 18,000 14,000
Income before income taxes 273,000 261,500
Income tax expense 81,000 77,000
Net income $ 192,000 $ 184,500
VILLA TOOL COMPANY
Assets 2012 2011
Cash $ 60,100 $ 64,200
Short-term investments 69,000 50,000
Accounts receivable (net) 117,800 102,800
Inventory 123,000 115,500
Total current assets 369,900 332,500
Plant assets (net) 600,300 520,300
Total assets $970,200 $852,800
Liabilities and Stockholders’ Equity
Accounts payable $160,000 $145,400
Income taxes payable 43,500 42,000
Total current liabilities 203,500 187,400
Bonds payable 200,000 200,000
Total liabilities 403,500 387,400
Common stock ($5 par) 280,000 300,000
Retained earnings 286,700 165,400
Total stockholders’ equity 566,700 465,400
Total liabilities and stockholders’ equity $970,200 $852,800
Compute ratios from balance sheet and income statement.
Compute the following ratios for 2012. (Weighted-average common shares in 2012 were 57,000, and all sales were on account.)
(a) Earnings per share.
(b) Return on common stockholders’ equity.
(c) Return on assets.
(f) Receivables turnover.
(g) Inventory turnover.
(h) Times interest earned.
(i) Asset turnover.
(j) Debt to total assets.
Indicate whether each of the following statements is true or false.
1. The corporation is an entity separate and distinct from its owners.
2. The liability of stockholders is normally limited to their investment in the corporation.
3. The relative lack of government regulation is an advantage of the corporate form of business.
4. There is no journal entry to record the authorization of capital stock.
5. No-par value stock is quite rare today.
On October 31, the stockholders’ equity section of Omar Company consists of common stock $600,000 and retained earnings $900,000. Omar is considering the following two courses of action: (1) declaring a 5% stock dividend on the 60,000, $10 par value shares outstanding, or (2) effecting a 2-for-1 stock split that will reduce par value to $5 per share. The current market price is $14 per share.
Complete the tabular summary of the effects of the alternative actions on the components of stockholders’ equity and outstanding shares. (If answer is zero, please enter 0. Do not leave any fields blank.)
Before preparing financial statements for the current year, the chief accountant for Springer Company discovered the following errors in the accounts.
- The declaration and payment of $50,000 cash dividend was recorded as a debit to Interest Expense $50,000 and a credit to Cash $50,000.
- A 10% stock dividend (1,000 shares) was declared on the $10 par value stock when the market value per share was $16. The only entry made was: Retained Earnings (Dr.) $10,000 and Dividend Payable (Cr.) $10,000. The shares have not been issued.
- A 4-for-1 stock split involving the issue of 400,000 shares of $5 par value common stock for 100,000 shares of $20 par value common stock was recorded as a debit to Retained Earnings $2,000,000 and a credit to Common Stock $2,000,000.
Prepare the correcting entries at December 31. (For multiple debit/credit entries, list amounts from largest to smallest e.g. 10, 5, 3, 2.)
Arnold Corporation has been authorized to issue 40,000 shares of $100 par value, 8%, noncumulative preferred stock and 2,000,000 shares of no-par common stock. The corporation assigned a $5 stated value to the common stock. At December 31, 2011, the ledger contained the following balances pertaining to stockholders’ equity.
Preferred Stock $240,000
Paid-in Capital in Excess of Par Value-Preferred 56,000
Common Stock 2,000,000
Paid-in Capital in Excess of Stated Value-Common 5,700,000
Treasury Stock-Common (1,000 shares) 22,000
Paid-in Capital from Treasury Stock 3,000
Retained Earnings 560,000
The preferred stock was issued for land having a fair market value of $296,000. All common stock issued was for cash. In November, 1,500 shares of common stock were purchased for the treasury at a per share cost of $22. In December, 500 shares of treasury stock were sold for $28 per share. No dividends were declared in 2011.
Prepare the journal entries for the: (For multiple debit/credit entries, list amounts from largest to smallest e.g. 10, 5, 3, 2.)
- Issuance of preferred stock for land.
- Issuance of common stock for cash.
- Purchase of common treasury stock for cash.
Sale of treasury stock for cash.